Even without losing equity, there is a lot of money that gets spent in the process of buying and then selling a home. Refugees from renting frequently don’t realize that the cost of getting into and out of a property. These costs are too high, in the current stagnant-at-best or going-down-at-worst market.
Someone who buys a short-term property is going to pay for all of these things, going in or out of the property:
Mortgage costs, cost of inspections and legal work and moving costs are part of the initial purchase. Then there are nesting and repair costs, along with home maintenance for the time they live there. When they go to sell, they face the dreaded broker fee, transfer taxes, Registry fees, cost of getting CO/smoke detector certification, costs of clean-up, and staging or otherwise preparing the place for sale. Any repairs not done may now bite the seller as a price reduction on the sale. After the sale, there are moving costs again.
Also, don’t minimize the cost of your time, effort, and inconvenience during the for-sale period and during the moves.
As far as I am concerned -- even without losing equity -- this is too much expense and wear and tear on your life to consider unless you can make a long-term commitment to your new living situation. For me, long-term starts at seven years; I am more comfortable with ten years.
As a rule of thumb: The cost of getting in and getting out of a property is 8-10 percent of the purchase price. You can reduce that some by buying for cash (and saving the debt service fees) or selling on your own (and avoiding those pesky real estate agents.)
The counter-argument is that paying rent at $2,000 a month for rent is throwing nearly $100,000 away every four years. The problem with this logic is that you are still paying $2000 a month, or more, in mortgage on the house you own, but might lose $50,000 in four years to fees and depreciation.
Is my seven year figure too short, given the current market?
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